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Surveying tough solutions for city's pension hole

There are several tough choices facing the people of Jacksonville when it comes to the steep job of funding police and fire pensions.

These aren’t the only pension costs facing the city, but they represent the bulk of the unfunded portion.

This coming budget year, for instance, about $122 million of the $150 million in additional costs are assigned to police and fire pensions.

The bill will only go up in future years for two reasons: additional officers and firefighters retiring and the unrealistically high cost of the pensions.

A report from the LeRoy Collins Institute last year put it succinctly: “Many of our local governments have promised more in retirement benefits to their employees than is fiscally prudent.”

What makes public employee pensions generally so lucrative, especially in the police and fire arena?

■ An early vesting period, allowing pension benefits long before age 65.

■ The ability to maximize the income used to compute pension benefits; using just a few highly paid years, for instance.

■ The ability to double dip, to qualify for retirement benefits and then return to work for more retirement income.

■ Generous investment guarantees.

■ Relatively low employee contribution rate.

So let’s review the hard decisions:

A FEW OPTIONS

Cutting services: We can have a city with raggedy parks, lousy streets, kids with no services and closed libraries. Layoffs for current public safety employees would likely occur, too.

Raising taxes and fees: Because Jacksonville is traditionally a low-tax city, there are all kinds of ways new revenue could be raised. Of course, this is no time to do it following the worst financial crisis since the Great Depression.

Go into debt: The people of Jacksonville can mortgage the future in service of the past, paying for benefits of people no longer serving. This wouldn’t be a quick fix, however. It would probably take a generation to pay off these unfunded liabilities. And because there isn’t much money available, it probably means higher taxes or fees to pay the debt.

And it would likely be a bad deal for Jacksonville, according to a study from the Center for Retirement Research at Boston College. Pension obligation bonds only make sense for cities with well-funded pension plans in good health. That’s not the case here.

“Most pension obligation bonds appear to be issued by the wrong governments at the wrong time,” the Boston College report stated. That would be Jacksonville.

Cutting benefits: In a nod to the taxpayers who have seen their pensions and 401(k) benefits disappear, the fair way to deal with the shortfall is to increase employee contributions and reduce various benefit calculations.

Why hasn’t anything happened? Mayor John Peyton’s office proposed a change that would affect new employees, but that was just a start. And the interlocking protection system built by those supporting the police and fire pensions was so well constructed that city leaders were not sure who they should be negotiating with.

For a city that values its public safety employees, it has been difficult to cut benefits that have been promised, no matter how unrealistic.

So what happens if no progress is made, if this gridlock remains?

THE LAST RESORT

The city can declare a state of financial urgency, which the city of Miami has done for three years, The Miami Herald reported. This allows cities to force union concessions.

The city also can declare a financial emergency, which has a series of specified steps that could lead to a state takeover of a pension fund. It has been done elsewhere in the country, but it would be a black eye on a city that prides itself on its financial acumen.

The poor financial state of the city’s Police and Fire Pension Fund certainly justifies rarely used actions.

At a funding level of less than 50 percent, the Police and Fire Pension Fund certainly would qualify for drastic measures. For instance, force a vote of the people if their representatives fail them.

Perhaps the best of these bad choices involves what happened in South Florida in Hollywood.

Voters were given a choice: Raise taxes or cut benefits. In separate ballot measures, voters chose to cut benefits for both general employees and police and fire.

Leting the voters decide has a nice ring.

POSSIBLE SOLUTIONS

The LeRoy Collins Institute has suggested several possible reforms. A few of them:

Raise recipient age: Raise the minimum age for retiree benefits.

Stabilize contributions: Cities should set a minimum contribution rate to ensure minimal contributions during good years.

Amend benefit calculation methods: Don’t base benefits on the salary schedule for only the last two years.

Encourage transparency: Localities should improve information to the taxpayers.

QUOTABLE

“… local government employee retirement obligations are a bigger, more complex ticking time bomb than recognized.”